All markets are drinking the Kool-Aid.

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The calm (before the storm?) is sending markets on an unimpeded path higher. It is a stark contrast from the past couple of years, where political upheavals and hawkish central bank talk sparked sudden selloffs or quick reversals in the most-loved securities. On my radar screen, stocks ended the week well. The S&P 500 is now up 7.4% this year, Emerging Markets up 10% and European markets up 8%. US Treasuries have held to the 2.6% level.

Some of us just hate it when they happen so fast that they are unable to get in at decent prices. Unsurprisingly, defensive assets have been complete dogs over the last 12 months and people are not thinking defensively. Elsewhere, whatever way you look at it there has been substantial fund flows into emerging market equities.

Bespoke Investment Group indicates that we are now at 445 days since the last 3%+ pullback (a record), 575 days since the last 5%+ pullback (18 days from a record), 712 days since the last 10%+ pullback (not close to a record), and 3,242 days since the last 20%+ pullback (2nd longest).


If we continue to appreciate at this rate, God knows what will happen next. A partner argued that never before in recent history has the market been this overbought and extended from longer-term averages which suggests that a correction is highly likely in the short term. A drop of 20% will be considered a full-fledged crash for many emotional beasts. Just keep in mind that such a decline from current levels is nothing from a bigger picture.

There are many things to note from a contrarian standpoint but that is a topic for another day. Meantime, I am still having lots of fun with exposure to technology, energy, financial, commodities, and industrials in my model portfolios.

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